Mosaic Smart Data, a financial markets analytics firm, has recently released a study that examined the liquidity of the FX market through recent data. This data was provided to the firm through CLS Group, a forex settlement provider.
Noting Key Shifts In Market Liquidity
In this report, in regards to the turnover data given by CLS, a fair few things were noticed as the liquidity profiles, and broad trends of major FX pairs were put under scrutiny. The most obvious thing is the monthly volumes for March skyrocketed up to $1.81 trillion. The study went into detail concerning the liquidity conditions of the market as well, particularly in regard to several periods of market stress. With this, the duration and magnitude of changes that the coronavirus pandemic has done in terms of liquidity and volatility are clear as ever.
With this data available for interpretation, there are a few key indications that point to the FX market at large, moving away from traditional rush hours when it comes to liquidity.
Spreading Out Liquidity
Through the use of a multi-factor model, the study Mosaic had done, encompasses two distinct periods of time: The standard period, which stretched from January of 2018 to Pre 27th of February, 2020, and the period experiencing stress under the coronavirus pandemic, from the 27th of February to the 26th of March, 2020.
Through a process of factoring the hourly volumes of FX, the report is capable of showing that very volatile periods within currency markets make investors break away from the London fixing hours. This lesser level of reliance makes liquidity levels spread across the UK hours evenly when it comes to major currency pairs. During the New York forex sessions, this very same trend could be noted, with New york forex being known for the sheer liquidity within its trading sessions.
No Isolated Occurrence
An example would be the EUR/USD and the GBP/USD trading pairs having their liquidity drop like a stone before and around the New York market close, which stands at around 18:00 to 20:00 GMT. This stands in contrast to normal market conditions. Furthermore, the GBP/USD trading pairs saw better liquidity when it was within Tokyo trading hours, with a further spike coming in at around Sydney closing times. The EUR/USD trading pair had its curve start to flatten at around 16:00 GMT within the stressed period, which implies a lesser emphasis on London trading hours.
With the USD/JPY trading pair, the liquidity was more equally distributed within London trading hours, as well. It seemed that the reliance on the fixing interval seemed to have gone down with the stressor event.